Market efficiency

Market efficiency is where share price of company changes as according to its company news,
information. Lets assume company ABC is doing well its profits are increasing in near future then its
share price goes high and similarly if company ABC profits are going to fall or some other negative news
heard in the market then its share may suffer decline in its value.

If share market are efficient then automatically the news publish or available influence the share price.
The effect of news reflects in the share price and there is no undervalued or overvalued share.

Efficient Market Hypothesis

Prices of financial instrument reflects all available market information and hence investor does
not get any benefits by analyzing its market and applying timing strategies.
The only way to gain benefits is by taking high risk (for example investing in shares that is
growing)
Forms of market Hypothesis:
1) Weak form: the past performance of company doesnot determines its growth or decline
in its performance of future in long term. ( this whole theory is based on long terms) and
we cant get benefits from technical trading strategies (predicting future performance
based on its past performance or past movement in its share price) but from
fundamental analysis (reading company report, analysis company balance sheet)
investors are expect to make some gain in trading.

2) Semi strong form: this suggest that investor will not be able to make gains either by
technical strategies or fundamental analysis.
Logic behind this is under fundamental analysis (public information) these information is
available to all investor so no one can make benefit by analyzing this. Prices adjust
quickly to information available to public.

3) Strong form: investor cant gain benefits even after knowing the insider information from
any insider dealing. The prices of share will adjust according to both private (insider
information) and public information. These information includes all private, public, past,
current.